(Indian Economy) Food Processing Industries - Mega Food Parks, Special Purpose Vehicle (SPC), Food Safety and Standards, NMFP

INDIAN ECONOMY

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FOOD PROCESSING INDUSTRIES

Food Processing Industry in India is of a relatively recent origin as consumption of processed food itself has seen a manifold rise due to fast changing life styles, increasing number of working women, shift in India’s demographic profile with 65 percent of India’s pollution below 35 years of age, increase in disposable incomes and the growth of organised food retail. Also, India has a huge and fast expanding consumer market with large and diversified production base. Nearly 55 percent of consumption expenditure of India’s rural population is on food and grocery while that of urban population is 40 per cent.


India is strategically located at the centre of Middle-East and South-east Asia with a long coastline and proper sea route connectivity as well as sufficient availability of raw materials for long periods. As a result India provides an attractive destination for multinational food companies to set up processing facilities in India both to cater to exports as well as domestic market. India is one of the world’s largest food producer, largest producer of fresh fruits and second largest producer of vegetables after Brazil Also it ranks fifth in poultry production and is the largest producer of milk. As such, both investors have ample opportunities for investment in food and food processing technologies skills and equipment specially in areas of canning, dairy and food processing, specially processing, packaging and frozen food/refrigeration. Fruits and vegetables, fisheries, milk and milk products, meat and poultry, packaged/convenience foods, alcoholic beverages and soft drinks and grains are important sub sectors of the food processing industry. Soft drink bottling, confectionary manufacture, fisheries, aquaculture, grain-milking and grain based products, meat and poultry processing, milk processing tomato paste, fast food, ready to eat breakfast cereals, food additives, flavours etc. have emerged as the most promising sub sectors.

The Ministry of Food Processing Industries is concerned with formulation and implementation of the policies and plans for the food processing industries within the overall national priorities and objectives. the Ministry acts as a catalyst for brining in greater investment into this sector, guiding and helping the industry, and creating a conducive environment for healthy growth of the food processing industry. within these overall objectives, the Ministry aims at better utilization and value addition of agricultural produce, minimizing wastage at all stages in the food processing chain by development of infrastructure for storage, transportation and processing of agro-food produce, induction of modern technology into the food processing industries, encouraging R&D in food processing for product and process development, providing policy support, promotional initiatives and facilities to promote value added exports, creating the critical infrastructure to fill the gaps in the supply chain from farm to consumer.

Food processing industries include all those items pertaining to the following two processes viz:

(a) Manufactured process. If any raw product of agriculture, animal husbandry or fisheries is transformed through a process (involving employees, power, machines or money) in such a way that it original physical properties undergo a change and if the transformed product is edible and has commercial value, then it comes within the domain of food processing Industries.

(b) Other value-added process: if there is significant value addition (increased shelf life, shelled and ready for consumption) such produce also comes under food processing, even if it does not undergo manufacturing processes.

Food Processing Industry ranks as the 5th largest industry in India in terms of production, consumption and exports. It employs over 16 percent of total workforce in organised manufacturing sector and 32 percent in unorganized manufacturing sector. It currently employs 13 million people directly and 35 million people indirectly. It has the potential to generate significant employment as the multiplier effect of investment is 2.5 times than in other industries. This industry is dominated by unorganized sector which contributes more than 70 percent of output in value and 50 percent in volume.

While the food-processing sector offers several opportunities, it faces several constraints which impede its growth. These are as follows:

(a) Low level of Government Outlay for Development of Food Processing Industries-During 11th Plan an outlay of Rs. 4031.00 crores was envisaged but in last 4 years only Rs. 1132.00 crores have been spent. The Vision 2015 envisages public expenditure of Rs. 10,000 crores by 2015.

(b) APMC Acts of State Governments discourage direct marketing arrangement between farmer and processor. The processor is required to obtain license from the respective state government as well as liable to pay market fees without even using mandi infrastructure.

(c) Essential Commodities Act, Stock Order etc. the Essential Commodities Act (ECA)1955 was put in place after independence to control production, supply and distribution of essential agricultural commodities and was put in place to ensure availability of food products, in the current context of liberalization, controlling the movement of products by licensing of dealers, limits on stocks and control on movements only hamper the growth of the agricultural sector and promotion of food processing industries.

(d) Food Quality Regulation Government has enacted an Integrated Food law, but the mechanism envisaged is yet to become operational.

(e) Taxes on processed food items Incidence of taxation in processed agricultural products not only acts as a disincentive for investment in the sector but also affects the competitiveness of the food products in the country. though primary agricultural commodities including fruits and vegetables are mostly exempted from tax, processed food commodities are subject to a variety of taxes, In most of the states, low value added food products are exempted from VAT. However, certain high value added food products like biscuits, confectionary, snack items are levied VAT at the rate of 12.5% in many states.

Apart from VAT, other taxes such as purchase tax, entry tax, octroi etc are also levied on food products. Also, packaging material (OTS cans, aseptic packaging paper and aseptic bags) which constitutes around 30-35% of the production cost of packaged food attracts excise duty. In case of snack food items, import tarrifs are as high as 30-65% which escalates its market price manifold. Also, it is mandatory for imported processed products to have at least two-thirds of their shelf life remaining on reaching the port.

(f) Non-tariff barriers like food labeling requirements for packaged goods and compulsory detention an laboratory testing of samples of each imported items, which boosts overhead costs.

(g) Lack of infrastructure for post harvest handling and storage, absence of cold chain facilities and fragmented supply chain of food products are some of the critical reasons holding back the growth of food processing industry in the country.

(h) No institutional mechanism to mitigate the small and fragmented size of farm holdings and to facilitate linkage between the farmer and the processors/market. The Mega Food Park Scheme and the Cold Chain Scheme of the Govt. of India envisage addressing these to a great extent.

(i) Reliable database for food processing industry does not exist currently in the country, which affects the planning process. Considering to high risk involved in food processing, a supportive insurance policy is critical to the growth of the sector, which does not exist currently.

(j) R&D in the food processing sector in the country is largely governed by universities and institutions with very little-involvement of industry. The research is also on traditional lines with less emphasis to market preferences. There is a need to involve industry for product development setting up of food development centres/incubation centres on a regional basis in various prominent agro-climatic zones.

(k) The current Indian crop production system largely continues to be traditional and subsistence agriculture. As a result, crop varieties being grown are not in tune with market and processing requirements.

(l) There are problems like adherence to food quality standards by most of the players in the industry, lack of skilled manpower, absence of market driven farming, high cost of transportation and lack of credit facilities.

Tue recognition to this sector was given only from the Eleventh Five Year Plan (2007-2012) by not only a substantial raise in the outlay allocated to this industry but also by initiating the most ambitious scheme of setting up Mega Food Parks in the year 2009-2010. Various other initiatives taken during this plan were as follows:
1. Establishment of cold chain, value addition and preservation infrastructure
2. Modernization of abattoirs
3. Technology upgradation
4. Human resource development
5. Entrepreneurship development programme
6. Setting up Food processing training centres
7. R and D and setting up of/upgradation of food testing laboratories
8. Upgradation of equality of street food
9. Strengthening of institutions relating to this industry

MEGA FOOD PARKS


The primary objective of the MFPS is to provide adequate / excellent infrastructure facilities for food processing along the value chain from the farm to market. It will include creation of infrastructure near the farm, transportation, logistic and centralized processing centres. The main feature of scheme is a cluster based approach. The scheme will be demand driven, pre-market and would facilitate food processing units to meet environmental, safety and social standards.

The expected outcome is increased realization for famers, creation of high quality rural processing infrastructure, reduction in wastage, capacity building of the producers and processors and creation of an efficient supply chain along with significant direct and indirect employment generation.

The scheme aims to facilitate the establishment of a strong food processing industry backed by an efficient supply chain, which would include collection centres, primary processing centres and cold chain infrastructure. The food processing units, under the scheme, would be located at a Central Processing Centre (CPC) with need based common infrastructure required for processing, packaging, environmental protection systems, quality control labs, trade facilitation centres, etc.

Core processing Facilities would include cleaning, grading, sorting and packing facilities, reefer vans, mobile pre-coolers, mobile collection vans etc. the Central Processing Centres will have buildings for common facilities like testing Laboratory (including equipments), Cleaning, Grading, Sorting and Packing Facilities (including equipments), Dry Warehouse, specialized storage facilities including Controlled Atmosphere Chambers, Pressure Ventilators, variable Humidity Stores, Pre-cooling Chambers, Ripening Chambers etc. (including equipments), Cold Chain Infrastructure including Reefer Vans, Packaging Unit, Irradiation Facilities. Steam Sterilization Units, Steam Generating Units, Food Incubation-cum-Development Centres etc.

Enabling Infrastructure would include roads, drainage, water supply, electricity supply including captive power plant, effluent treatment, telecommunication lines, parking bay including traffic management system, weighbridges etc. at the PPC and CPC level.

Special Purpose Vehicle (SPC)


The responsibility of execution, ownership and management of the Mega Food Park would vest with a Special Purpose Vehicle {SPV} in which Financial Institutions/Banks, Organized Retailers, Processors, Service Providers, Producers, Farmer Organizations and other related stakeholders would be the equity holders. The preference for sanctioning assistance under the Scheme would be given to those SPVs in which industry units with the plans of processing wide range of perishable products will have major stake.

Government agencies can also become shareholders in SPV, if they so desire, holding should be less than 26% of share capital so as to ensure private sector character of the SPV.

The Food Safety and Standards Act, 2006


The Act came into effect from August, 2011 with the notification of enabling Rules and Regulations. This has thus consolidated all existing food laws in the country with the repealing of existing Central Acts. The Act has laid down science based standards for manufacturing, storage distribution and sale of all food products. Under the Act, there are also commissions of Food Safety at State Level.

Codex Standards: these are standards developed by FAO and WHO to protect the health of consumers and ensure fair practices in food trade. These are reference parts for international trade in food products.

Twelfth Five Year Plan


An outlay of over 15,000 crores has been earmarked for this sector during the plan. The most significant initiative being proposed during 12th Plan is launching of a National Mission on Food Processing (NMFP). This would be decidedly a paradigm shift in the Ministry’s approach and is driven by the need to make food processing truly a national initiative. It is also fully realized that unless State Government become implementing agencies of Ministry’s various Schemes and Programmes, there would remain in limitation on size and depth of Ministry’s programmes. The success achieved by initiatives like National Horticulture Mission also suggests that Ministry may adopt a similar approach to reach farmer and small entrepreneurs. The NMFP is thus guided by twin principles of Decentralization and Outreach.

The Mission seeks to make India a global leader in production, consumption and export of safe, hygienic, nutritious and quality processed food items by enhancing processing levels, and quality assurance and capacity building. The targets of the Mission are:

1. Increasing the levels of processing of perishables from 6 percent to 20 percent
2. Value addition from 20 to 30 percent
3. Increasing share of India in global food trade from 1.5 to 3 percent
4. Skill development to the tune of 1.5 million

Objective of NMFP


(a) To spread the message of significance of good processing for enhancing agricultural productivity and farmers income in the country.
(b) To assist the State Government in creating requisite synergy between their agricultural plans and development and food processing sector.
(c) To assist the State Government in addressing both institutional and infrastructural gaps along the value chains and thus create efficient supply chains for agricultural produces.
(d) To promote initiative for skill development, training and entrepreneurship which would meet needs of both post-harvest management and food processing industry.
(e) To assist MSMEs in setting up/modernization of food processing units by providing need based support in terms of capital/technology/skill etc.
(f) To assist food processing industry to need requisite standards in terms of food safety laws and market demand, both domestic and international.
Five Guiding Principles of the Mission:
(a) Organizing the unorganized food processors, including Self-Help Groups, to help them reap advantages of Mission initiatives.
(b) Ensuring advantages of programmes/Scheme/institutions /infrastructure of NFMP reach Micro and Small Enterprises of Preferential basis.
(c) Dedicated, professional, sensitive and accountable support structure to initiate and implement the Mission initiatives in a transparent manner.
(d) Mission initiate to be shaped and driven by proposed beneficiaries.
(e) Adoption of best practices for scaling up programmes/initiatives.

A list of major schemes and programmes covered in the mission is given below:

  • Technology upgradation
  • Supporting cold chain facilities for non-horticulture produces and Reefer vehicles
  • Creation of primary processing centres/collection centre in rural areas.
  • Modernization of abattoirs
  • Modernization of meat shops
  • Human Resources Development
  • Promotional activities like seminars/workshops/survey /exhibition/fairs advertising/publicity
  • Upgradation of quality of street food

All these schemes would be implemented as centrally sponsored schemes or through additional of central assistance route by giving responsibility of implementation to the state governments. The mission would operate at National, State and District levels.

The government has announced fiscal incentives over the, years to food processing industries. These incentives are in the form of sops in income tax, excise duty and custom duty besides listing many of the processes in the negative list for purpose of service tax. Many of the tax incentives have also been provided for food processing machineries as well as packaging equipment. The Union Budget 2014-15 also proposed setting up of special fund of Rs. 2000 crores to provide credit at affordable rates to the food processing sector. Besides, an amount of Rs. 100 crores has been provided for Agri-tech infrastructure fund.

Besides, in recent years, excise duties have been brought down on machinery for preparation of various processed food items.

The latest initiative to give a boost to this sector has been the inauguration of a National Food Park by the Prime Minister in October, 2014 at Tumkur in Karnataka at the Vasantha Narasapura Industrial belt 90 kms. From Bngalore. The Park will provide infrastructure facilities to the sector along the a value chain from the farm to the market.

The food park is a public private partnership programme of the Union Ministry of Food Processing Industries. The food park is an initiative of Future Group chief Kishore Biyani.

The 110 acre park will have world class food processing and cold storage unit. The Future Group has invested Rs. 140 crore and another Rs. 120 crore is required before it is fully commissioned.

The state government has allotted the land under the Karnataka Industrial Areas Development Board (KIADB). It would be equipped with 60 medium-size food processing units that would make ready-to-eat products. In addition, there would also be in-house pulping, milling, flouring, spice and dal units.


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